Sell in buyers market or hold

[Ricardo Zuniga]

Hello Forum,

My name is Ricardo I live in Southern California in Reseda Adjacent to Encino and Lake Balboa. I would like any advice or recommendation on my current situation. My wife and I bought our first home 6 months ago for the price of $490,000 its a 3Bed 1 bath with a 2 car detached garage and fully remodeled home. We currently owe $470,000 on a 30yr Fix at 3.85% FHA loan. The property when purchased got appraised for $560K. I am looking at what options I may have to maximize on my opportunity to invest in rental properties.

1. I was looking into refinancing into a conventional loan and get rid of the PMI but now interest rates have gone up. I don't know if that still makes sense. I also wanted to pull some money out and convert the garage into a rental.

2. Another option I had in mind is sell the property and try to get top value for it. Then buy a smaller 2bed 1 bad property in a better area. Put a portion of the profit down and use the rest to convert the property into a 3bed 2bad which will increase the value of the home and gain my equity back and then some and have a lower payment in order to buy a rental property.

What I am trying to accomplish  is a way to use my profits to have leverage on buying rental properties. Any suggestions or comments on what will be the best practices on this situation will be greatly appreciated. 

[Sri Voodi]

I'm very familiar with the area, so if I were to stand in your shoes, this is how I would look at your options

Monthly expense on current home based on the numbers you provided - $3144 (PITI)

I don't know the property and any comps so I would suggest you to run the numbers to see if refi makes sense in your case given today's interest rates 

garage rental is a not a bad option, I know you can find tenant easily in Reseda. But it is lot of work and liability. All it takes is one TENANT FROM HELL to make your life miserable. You are more vulnerable when you rent it out illegally. Renting is not as easy as it looks. 

Now coming to selling - I really don't think you are going to get any where close to $560k as it is appraised. here is the closest comp I got valued at $455K, and mind it has 2 baths. And Reseda doesn't have good schools, to me a good school is seller magnet in LA market. I would say you bought it at a high price to start with. And buying a 2 bed 1 bath will most probably will get you a Condo with HOA, so there wouldn't be any chance of adding a bed and a bath

http://www.zillow.com/homedetails/7631-Bothwell-Rd...

Having said that I would stay put in the same property for a few more years and keep building equity. 

I'm in no way discouraging you in pursuing your alternatives, the chances are I might be completely wrong with my analysis. 

Hope it helps and good luck with whatever you would choose to pursue